A bold but realistic economic vision
China’s long-term income objectives and development goals are well within its reach
Delivered by Premier Li Keqiang at the start of the National People’s Congress’ annual session on March 5, the Government Work Report set a growth target of over 6 percent for the Chinese economy for 2021, laying out a numeric goal after it was skipped in 2020 due to the COVID-19 pandemic.
China plans to create more than 11 million new jobs in 2021, while keeping inflation rate (consumer price index) at 3 percent and cutting the budget deficit to 3.2 percent of gross domestic product. The goal is to increase annual research and development spending by more than 7 percent in the next five years, including foreign-funded R&D centers in China.
Amid COVID-19 and severe global contraction, China’s GDP growth was only 2.3 percent in 2020, yet it was the only major economy to achieve positive growth. In 2021, international observers project China’s growth will increase up to 8 percent, due to a low base and the ongoing recovery momentum.
In addition to fiscal and monetary policies, the government’s focus is increasingly on job creation and consumer prices that have a direct impact on per capita incomes. This is vital in light of the modernization goals set in the 14th Five-Year Plan (2021-25).
Some two decades ago, Goldman Sachs’s Jim O’Neill coined the idea of BRIC (Brazil, Russia, India and
China) economies, predicting China’s GDP would catch up with that of the United States by the early 2040s.
During a conversation in 2009, I projected the inflection point to come around the late 2020s while O’Neill said Goldman Sachs was also revising its catch-up prediction. Despite the failed global recovery in the 2010s and the US tariff wars, these projections remain on schedule and may be accelerating.
As the difference between the US and Chinese growth rates increased from less than 4 to almost 6 percent in 2019-20, rapid recovery brought the Chinese economy closer to the US’ economic output, which it could surpass by the end of the 2020s.
In November last year, President Xi Jinping said: “It is entirely possible for China to meet the current high-income countries’ standards by the end of the 14th Five-Year Plan and to double the economic aggregate or per capita income by 2035.”
That would require a growth rate of 4.7 percent to 5 percent in the next 15 years. It is a bold objective, but within China’s economic potential.
China’s recent trade progress supports the realization of that potential. Despite the US tariff wars, China ended 2020 with a record trade surplus and strong exports.
Last November, China signed the Regional Comprehensive Economic Partnership agreement with 10 Association of Southeast Asian Nations member states, plus Japan, the Republic of Korea, Australia and New Zealand.
A month later, China wrapped up negotiations on the Comprehensive Agreement on Investment with the European Union.
Offsetting external uncertainties, trade pacts support domestic demand, technology self-sufficiency, supply chain upgrading and further opening-up.
Moreover, China’s potential is supported by investment and finance. Inbound foreign direct investment in China hit a record high of $144 billion in 2020, thanks in part to the new Foreign Investment Law. And the financial integration between China and the global economy has intensified.
The big question mark is on external efforts to undermine China’s potential, particularly the rise of Chinese multinational enterprises in advanced technology.
Recently, Anne O. Krueger, former chief economist of the World Bank, noted that former US president Donald Trump’s “modus operandi was to bully China on trade, foreign investment, cyberspace, e-commerce, intellectual property, the South China Sea, Taiwan, and other issues”. Characterizing Trump’s trade war as “a failure that harmed both China and the US”, Krueger called for “resetting USChina trade relations”.
Yet new US Secretary of State Antony Blinken’s foreign policy speech, parts of which left Democratic progressives furious, suggests that his China vision builds on his predecessor Mike Pompeo’s blunders. It claims to be competitive when it seeks supremacy, collaborative which it precludes, and adversarial when that is not warranted.
Reportedly, the Joe Biden administration may go ahead with a Trump administration-proposed rule to secure the technology supply chains by allowing the US Commerce Department to prohibit transactions involving “foreign adversaries” including China.
Former Google top executive Eric Schmidt, who has headed Pentagon technology commissions, has urged Biden and the US Congress to exploit targeted export controls on high-end semiconductors “to protect existing technical advantages and slow the advancement of China’s semiconductor industry”.
And since artificial intelligence requires 5G platforms that Chinese high-tech companies have pioneered in commercial markets, the objective is to undermine those companies, including China’s nascent semiconductor industry.
By promoting new rearmament drives, geopolitical frictions and forever wars, such priorities would further deepen the US’ income polarization. As the bipartisan Congressional Budget Office has just warned, the US’ debt as a percentage of its GDP will soar in a matter of years.
Such misguided agendas would also derail industrialization and modernization in many emerging and developing economies that cooperate with China and benefit from its peaceful development.